Bitcoin may suddenly burst from its current multi-year price range into stratospheric valuation territory, reaching as high as $11 million per coin by 2036, if an era of deflation fueled by AI technology emerges, according to Joe Burnett, lead strategist at Strive Asset Management.
His unorthodox prediction illustrates how the future of macroeconomic forces and productivity may change the economics of digital assets.
Macro Model Behind the $11M Forecast
In his research note, Burnett describes a framework in which AI and automation cause global deflation as a result of the massive increase in efficiency that AI and automation will bring to industries such as manufacturing, services, and logistics. In this framework, the following occur:
- Consumer prices decline as a result of reduced costs due to productivity gains
- Real wages increase as output grows at a rate faster than the nominal money supply
- Central banks keep monetary policy tight because of disinflationary pressures
- Real interest rates are still high, which discourages debt leverage and improves the real savings rate
Burnett states that in this world, the importance of Bitcoin’s supply cap of 21 million is going to be more valuable as it is in contrast to fiat money that loses value over time due to credit expansion and monetary expansion cycles.
According to Burnett’s model, Bitcoin will act as a “unit of account and store of value” in a deflationary macro environment, which will justify the $11 million price tag if the networks and institutional adoption grow in that manner.
Burnett’s model explains that the price of Bitcoin can be explained not only by the fundamentals of the network but also by the global GDP and productivity trends that could evolve if the AI productivity gains exceed all previous norms.
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AI, Deflation, and Bitcoin’s Role
The essence of Burnett’s thesis is that the potential for AI-driven productivity growth could lead to a new macro regime that has never been witnessed in the post-war period, where inflation is either low or negative, and real growth accelerates. In this new macro regime, the following occurs:
- The cost of goods and services declines over time
- Real wealth grows without the corresponding growth of money
- Digital scarcity assets such as Bitcoin have pricing power over fungible units of fiat currency
This is the opposite of the traditional inflation hedge story, where Bitcoin is portrayed as a hedge against monetary inflation. Burnett’s thesis argues that Bitcoin could actually succeed even in the absence of inflation because the demand for a scarce, public, and decentralized asset grows with real economic output and financial savings.
Criticisms and Risks
Although very interesting, Burnett’s $11 million estimate is based on some hypothetical macro trends that might not happen in the future.
The AI-induced productivity boost might not lead to a deflationary environment if monetary and fiscal policies counteract these effects. Real interest rates and debt trajectories might diverge from current projections.
Barriers to the adoption of Bitcoin, such as regulatory issues and the emergence of alternative digital currencies, could limit the upside potential of Bitcoin’s valuation.
Industry observers have pointed out that price predictions with extreme multiples over a long period of time are more theoretical than practical, as they are contingent on some macroeconomic variables and the adoption of new technologies.
As Bitcoin Magazine recently pointed out, astronomical price predictions should be viewed with some skepticism, particularly if they are contingent on some future structural change that might or might not happen.
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